BP Needs Oil to Rise to $60 to Break Even -- 5th Update

By Sarah Kent 

LONDON -- BP PLC said it needed oil prices to rise to $60 a barrel in order to break even, as the British oil giant ramped up debt levels last year to fund spending, maintain its dividend and cope with costs associated with the 2010 Deepwater Horizon disaster.

The company said Tuesday the blowout in the Gulf of Mexico cost it another $7.1 billion in pretax payments last year. The total pretax bill has now reached $62.6 billion for a disaster that killed 11 rig workers and spilled millions of barrels of oil into the Gulf, BP said. The company expects spill-related cash payouts of between $4.5 billion and $5.5 billion this year, and sees them falling sharply to around $2 billion in 2018 and a little over $1 billion in 2019.

The spill costs contributed to BP's second consecutive annual loss, the company said, as it eked out a small profit in the final quarter of 2016.

BP shares were 3.9% lower in afternoon trading in London.

"In the current uncertain environment increasing the portfolio's 2017 break-even seems a step too far," said Rohan Murphy, energy analyst at Allianz Global Investors, which holds shares in BP. The results "are weak whichever way we cut them."

BP had previously said it needed Brent crude to trade around $50 to $55 a barrel to cover its capital spending and dividend payouts from cash flow, but executives said hitting that target late last year gave them the confidence to make a number of acquisitions that increased its planned investment for 2017.

Brent crude prices fell 1.2% to $55 on Tuesday.

Rival Royal Dutch Shell PLC said it was already generating enough cash flow from operations in the past two quarters to cover its dividend and capital spending. Exxon Mobil Corp. has said it is also covering its costs, with the help of proceeds from asset sales, and Chevron Corp. has said it expects to be cash flow positive this year.

Norway's state-owned oil company, Statoil ASA, on Tuesday decreased its break-even oil price to $50 a barrel from $60 a barrel.

Oil companies have spent much of the past three years scrambling to bring their spending in line with cash generation as oil prices plummeted and investors worried about the sustainability of their sizable dividend programs.

BP on Tuesday said its replacement-cost loss -- a number similar to net loss in the U.S. -- was $999 million in 2016, compared with a loss of $5.2 billion a year earlier. The company reported a profit in the fourth quarter of $72 million, compared with a loss of $2.2 billion in the same period of 2015.

BP caps off a poor set of results after Chevron and Exxon posted disappointing earnings and Shell said profit fell to its lowest level in over a decade. Statoil on Tuesday reported a net loss of nearly $2.8 billion in the fourth quarter.

BP executives still struck a confident tone. They said the company had completed a number of acquisitions late last year, giving it access to new production to capitalize on oil prices that have been buoyed by the Organization of the Petroleum Exporting Countries decision to cut output.

"I think this period '15, '16 and '17 may prove to be the trough for us, " said BP Chief Executive Bob Dudley, highlighting growth prospects in 2017 and beyond that are expected to bring online 800,000 barrels a day of new production by 2020.

After years of cost-cutting, BP upgraded its spending plans for 2017 to invest in its new fields. Its capital expenditure is expected to be between $16 billion and $17 billion this year, similar to 2016, but up from previous guidance of $15 billion to $17 billion for the year.

Those higher-spending plans are the core reason BP said it now needs oil prices of $60 a barrel to balance its spending.

The company's chief financial officer, Brian Gilvary, said he sees oil prices staying comfortably above $50 a barrel this year and cash flow reaching between $21 billion and $22 billion, enough to cover spending and dividend payouts.

Even if Brent prices don't hit $60 a barrel -- a level not seen since June 2015 -- he said the company's all-important dividend wouldn't be affected. The company took on $35.5 billion in debt in 2016, up from $27.2 billion at the end of 2015, in part to keep paying the dividend.

"It's probably the most secure it's looked in years," Mr. Gilvary said of the dividend.

Write to Sarah Kent at [e-mail]

(END) Dow Jones Newswires

February 07, 2017 11:47 ET (16:47 GMT)

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